Before the use and official recognition by Congress of Special Needs Trusts (SNTs), “disinheritance” was commonly used by families. Disinheritance is accomplished by leaving the disabled loved one out of the last will or trust. Leaving nothing to the disabled loved ones left them without assets. That, in turn, would qualify them for government benefits.
It was also common practice for the families that did disinherit the disabled loved one to leave a share of money informally to a sibling to use for care of the disabled brother or sister. When this was done as a means of providing for a disabled loved one, the assets were put at risk. A non-disabled sibling holding assets for the benefit of a disabled sibling could be subject to such liabilities such as judgments from automobile accidents, a bankruptcy, or a divorce. In such circumstances, the assets meant to benefit the disabled loved one could go to pay the judgment creditors or the estranged spouse of the non-disabled sibling.
A Special Needs Trust is designed to benefit an individual who has a disability. A Special Needs Trust is a specialized legal document. A Special Needs Trust is often a “stand alone” document, but it can form part of a Last Will and Testament or be a subpart of another family trust. It provides for supplemental and extra care over and above that which the government provides. It enables a person under a physical or mental disability, or an individual with a chronic or acquired illness, to have, held in Trust for his or her benefit, an unlimited amount of assets. In a Special Needs Trust, those assets are not considered countable assets for purposes of qualification for certain governmental benefits. Such benefits may include Supplemental Security Income (SSI), Medicaid, vocational rehabilitation, subsidized housing, and other benefits based upon need.
Using a Special Needs Trust will guarantee that the funds will be held only for the benefit of the person under the disability or chronic illness, and not for any other purpose whatsoever.
Each Special Needs Trust is its own “entity” with its own Federal Identification Number issued by the Internal Revenue Service. The Trust is not registered under either the Grantor’s or the Beneficiary’s Social Security Numbers.
A Special Needs Trust can be established at any time before the disabled loved one’s 65th birthday. It is very common to create a Special Needs Trust early in a disabled child’s life as a long-term means for holding assets to benefit the disabled family member. This is particularly true of parents who wish to leave funds for a child’s benefit after the parents’ death. The Special Needs Trust is the estate-planning tool of choice for those parents. As a part of Estate Planning, the costs of the creation of the Trust are tax deductible.
Also, the disabled person may at some time during his or her lifetime come into funds from third party sources, such as a personal injury settlement or a bequest from relatives or friends, Social Security back payments, insurance proceeds, or the like. This particular type of special needs trust (First Party SNTs) has some unique rules that apply to it that would not apply to a special needs trust set up by someone other than the disabled person (Third Party SNTs).
It is great to know that disinheriting disabled loved ones is no longer a necessary evil. With a Special needs trust as an option, a disabled loved one can have many funds for some of life’s special comforts without losing needed governmental benefits.